When insurers demand appraisal, you lose the right to sue

Are you thinking of suing your insurance company because it won’t agree to pay what your contractor says is needed to fix your hurricane-damaged roof?

Don’t be surprised if you open your mailbox one day and find the option to sue is gone because your insurer is sending your dispute to an alternative resolution process called appraisal.

That means you and your insurer would each be required to hire your own appraisers — which could cost you hundreds, perhaps thousands of dollars — and if they can’t agree on a settlement, you would have to split the cost of hiring an umpire to resolve the claim.

Whatever comes out of the process would be binding. And unless you can prove the appraisal process was flawed, you would be prohibited from litigating the claim in court.

Insurers in Florida are sending increasing numbers of claims disputes to appraisal to expedite the settlement process and reduce the volume of lawsuits filed against them, industry experts say. While lawsuits can drag on for years and run up legal fees far exceeding the cost of repairs, a claim sent to appraisal can be settled in weeks.

Use of appraisal by state-run Citizens Property Insurance Corp. has spiked sharply since Hurricane Irma hit the state in September 2017. The storm triggered a surge in lawsuits by policyholders, and Citizens turned to appraisal to stem the tide, spokesman Michael Peltier said.

Between December 2017 and July 2018, appraisal has been used 10,644 times in Florida, or an average of 1,331 a month, to settle Citizens claims disputes, according to data provided by Citizens at the request of the South Florida Sun Sentinel. During the same period a year earlier, appraisal was used 1,485 times, or an average of 186 a month. The company has received 70,544 claims related to Hurricane Irma.

Most of the appraisal requests were by Citizens, but some came from policyholders “to get claims [settled] more quickly,” Peltier said.

How often private market insurers are using appraisal is unknown. There’s no requirement to send data to the state Office of Insurance Regulation or the Department of Financial Services. But informally, industry sources acknowledge appraisal is being used more often.

Travis Miller, spokesman for Fort Lauderdale-based Universal Property and Casualty Insurance Co., the largest insurer in South Florida and in the state, did not provide statistics but said the company has sought use of appraisal as well as non-binding mediation “more often now than in the past because these alternative dispute resolution mechanisms give the parties an opportunity to resolve disputed amounts much faster and more cost-effectively than litigation.”

In 2015, Citizens adopted policy language enabling the company, a policyholder or a third party working under a claim assignment, such as a repair contractor, to unilaterally invoke the appraisal process. That’s the way it used to be, until the 2004-2005 spate of hurricanes sparked an increase in appraisal activity that Citizens perceived as “abusive,” according to Peltier (or too generous to policyholders, according to Charles Tutwiler in his blog PublicAdjuster.com).

While some insurers abandoned the appraisal option altogether, Citizens in 2010 started requiring both parties to agree to go to appraisal. Policyholders and assignees responded by taking their disputes straight to court, exploding the company’s legal costs. The resulting increase in litigation was “not what we had intended,” Peltier said.

With the unilateral option back in place since Jan. 1, 2016, Citizens began demanding appraisal as a strategy to prevent lawsuits by third-party assignees, Peltier said. “We were seeing good results in that cases were being settled much more quickly, the policyholder got their money, and we were not proceeding on to litigation. We started to expand the use of appraisal to non-[assignee]-related claims, especially after Irma hit.”

Policyholders aren’t always on the hook for appraisal costs, said Paul Handerhan, senior vice president of public policy for the insurance watchdog group, Florida Association for Insurance Reform. If the dispute involves a third-party contractor, the contractor will pay, he said. If a policyholder has hired a public adjuster to help pursue the claim, the public adjuster will often serve as the policyholders’ appraiser for no additional cost, he said.

Whether allowing insurers to demand appraisal unilaterally is fair to consumers depends on whom you ask.

Insurers say appraisal gets policyholders paid quicker and — by preempting litigation — reduces insurers’ overall costs of settling claims, which reduces costs passed to future ratepayers. Insurers have long complained that plaintiff’s attorneys file too many suits because state law allows them to recover fees from insurers far exceeding the value of the disputed claim.

Plaintiff’s attorneys say appraisal puts policyholders and third-party assignees at a disadvantage when forced to pay upfront for their own appraiser, and for half the cost of an umpire if two appraisers cannot agree.

If the amount of money in dispute is relatively small, say $5,000 or less, then policyholders or contractors will more likely feel compelled to accept the insurer’s initial offer because the cost of appraisal would exceed the difference between the insurer’s offer and the amount sought, said Lee Jacobson, an Orlando-based plaintiff’s attorney specializing in insurance coverage disputes.

Citizens and other insurers know this and can use appraisal as leverage, he said. “It allows them to pick any number out of the air and say, ‘If you don’t like it, you’ll have to pay to get another number,’” he said.

Jacobson, who frequently represents the Florida Justice Association trial attorneys’ trade group in legislative matters, said some insurers are even sending settlement proposals to policyholders “with language saying, ‘If you disagree, we want to go to appraisal.’”

One of Jacobson’s colleagues, Joe Ligman of Palmetto Bay-based Ligman Martin P.L., said policyholders who can afford to wait are better off suing. “You’ll get a better net result, and you won’t have to pay the cost of appraisal,” he said. “There’s no out-of-pocket [cost] when you hire a lawyer.”

Peltier stressed that policyholders who have been through appraisal still have the right to sue over disputes that fall outside of the repair cost issue, including, for example, “[if] we deny part of a claim or there’s a dispute over additional living expenses, law and ordinance coverage, etc. But [it is] correct that matters within the appraisal parameters are binding.”

Some insurers, including Universal, still require both disputing parties to agree to the process, Universal spokesman Miller said.

“The parties’ mutual agreement to use this process typically suggests they are proceeding to appraisal with a commitment to reaching a prompt and fair resolution of their open issues,” he said.

Jacobson said that policy is preferable to allowing insurers to demand appraisal whenever they see fit.

He would like to see state law revert back to requiring agreement from both sides. He would like to see other consumer protections enacted, including a training or licensing requirement for appraisers. Under current state law, anyone can be an appraiser, which means insurers can appoint their own adjusters and policyholders can be represented by public adjusters they’ve hired to help them pursue their claims, he said.

Insurers have varying criteria written into their policies. Citizens, for example, only requires that each side choose a “competent” appraiser. The state should require a certification process, Jacobson said, perhaps modeled after standards adopted by the trade group, Insurance Appraisal and Umpire Association [IAUA] Inc.

IAUA president Robert Norton contends that insurers by and large don’t abuse the appraisal process to pressure policyholders.

“There’s a reluctance by insurance companies to cavalierly and quickly pull the trigger on appraisal,” he said. “But I know it happens.”

The insurance market, he said, “should be sensitive to when numbers are small, putting more effort into negotiating.”